On February 1, 2012, the Securities and Exchange Board of India (“SEBI”) had introduced the mechanism for offer for sale through the stock exchange (the “Stock Exchange OFS”) with the intention of facilitating offloading by promoters and promoter group members in listed companies. It was expected to bring in transparency in secondary transactions as well as draw wider participation. The introduction of the Stock Exchange OFS was also a recognition of limitations of then existing methods for achieving minimum public shareholding (the “MPS”), i.e. taking the public issue route, which was both time consuming and cumbersome.
Partner - Regional Head Markets Practice (West) at the Mumbai Office of Cyril Amarchand Mangaldas. Abhinav focuses on a variety of capital markets transactions, including initial public offerings, follow-on offerings, rights issues, QIPs and preferential issues by listed companies. He can be reached at firstname.lastname@example.org
The SEBI has streamlined certain aspects of the rights issue process that is expected to not only reduce the timelines but also provide clarity on the renunciation and trading of rights entitlements. These are welcome changes and will potentially make rights issues a preferred option to raise capital for listed companies.
Whilst rights issues are offerings to existing shareholders, it typically takes 55 to 58 days to complete the process (excluding SEBI review and the time taken for due diligence and drafting the offer document). The process involves (i) a minimum 15-day rights issue application period, (ii) mandatory participation by certain investors only through the non-ASBA process (such as through cheque) and (iii) a seven clear working days intimation prior to the record date. SEBI has addressed some of these concerns through amendments to the SEBI ICDR Regulations, SEBI Listing Regulations (both effective from December 26, 2019) and a circular with effect from February 14, 2020.
Continue Reading SEBI Streamlines Rights Issue Process
The Securities and Exchange Board of India (“SEBI”) at its board meeting on June 27, 2019 approved the following important proposals, which become effective on the formal amendment of the respective regulations. A brief summary of the significant changes are set out below:…
Continue Reading SEBI Board Approves Framework for DVRs, New Definition of ‘Encumbrance’ and Clarifications to the Insider Trading Regulations
Section 42 of the Companies Act, 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 are substantive provisions for regulating private placements by Indian companies. These provisions are, of course, in addition to applicable regulations prescribed by the Securities and Exchange Board of India (“SEBI”) for listed companies. Recently, both Section 42 and Rule 14 have undergone amendments by way of the Companies (Amendment) Act, 2017 and the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2018, respectively (the “Recent Amendments”).
Continue Reading Recent Amendments to the Private Placement Guidelines – Revamp or Cosmetic?
Over the years, companies have used employee stock option schemes (ESOP Schemes) as an effective method to align employee interests with shareholders, reward their efforts, increase their loyalty towards the company and motivate employees to perform better.
An initial public offering (IPO) and consequent listing of equity shares is one of the critical ways in which employees seek value appreciation in stock options and equity shares held by them. Accordingly, unlisted companies typically align timing of exercise of options under ESOP Schemes with their plans to undertake an IPO.
The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended (SEBI ICDR Regulations), which regulates IPOs, provides exceptions for ESOPs from certain eligibility conditions to be fulfilled by the issuer undertaking the IPO as well as transfer restrictions on equity shares applicable after the completion of the IPO.
However, issuers have faced challenges in the past with respect to eligibility conditions if the options have remained outstanding with individuals who have ceased to be an employee of the issuer.
Further, issuers are being increasingly questioned by such former employees, who continue to hold shares in the issuer but are not offered lock-in exemptions available to existing employees. Additional basis to these concerns is that former employees are treated beneficially under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 (ESOP Regulations) and the Companies Act, 2013 and similar benefits have not been recognised under the SEBI ICDR Regulations.…